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Subject 4. General Requirements for Financial Statements
#cfa #cfa-level-1 #financial-reporting-and-analysis #financial-reporting-standards
The objective of IAS No. 1 is to prescribe the basis for the presentation of general-purpose financial statements, to ensure comparability both with the company's financial statements of previous periods and with the financial statements of other entities. To achieve this objective, this Standard sets out overall requirements for the presentation of financial statements, guidelines for their structure, and minimum requirements for their content.

Components of Financial Statements

A complete set of financial statements comprises:

  • a balance sheet
  • an income statement
  • a statement of changes in equity showing either:

    • all changes in equity, or
    • changes in equity other than those arising from transactions with equity-holders acting in their capacity as equity-holders

  • a cash flow statement
  • notes, comprising a summary of significant accounting policies and other explanatory notes

Fundamental Principles Underlying the Preparation of Financial Statements

A company whose financial statements comply with IFRS shall make an explicit and unreserved statement of such compliance in the notes. Financial statements shall not be described as complying with IFRS unless they comply with all the requirements of IFRS.

Underlying principles:

  • Fair presentation. Financial statements shall present fairly the financial position, financial performance, and cash flows of a company. In virtually all circumstances, a fair presentation is achieved by compliance with applicable IFRS.

  • Going concern. A business is presumed to be a going concern. If management has significant concerns about the company's ability to continue as a going concern, the uncertainties must be disclosed.

  • Accrual basis. IAS No. 1 requires that a company prepare its financial statements, except for cash flow information, using the accrual basis of accounting.

  • Consistency. The presentation and classification of items in the financial statements shall be retained from one period to the next unless a change is justified either by a change in circumstances or requirements of new IFRS.

  • Materiality and Aggregation. Each material class of similar items must be presented separately in the financial statements. Dissimilar items may be aggregated only if they are individually immaterial.

Presentation requirements:

  • No offsetting. Assets and liabilities, and income and expenses, may not be offset unless required or permitted by IFRS.

  • Classified balance sheet. A business must normally present a classified balance sheet, separating current and non-current assets and liabilities. Only if a presentation based on liquidity provides information that is reliable and more relevant may the current/non-current split be omitted.

  • Minimum information on the face of the financial statements. IAS No. 1 specifies the minimum line item disclosures on the face of, or in the notes to, the balance sheet, the income statement, and the statement of changes in equity.

  • Minimum information in the notes. IAS No. 1 specifies disclosures about information to be presented in the financial statements.

  • Comparative information. Comparative information shall be disclosed in respect of the previous period for all amounts reported in the financial statements, both on the face of financial statements and in notes.
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